Tesla disappoints as margins compress, markets seek direction

Due diligence...just ask Taylor Swift. Apparently the singer was one of few celebrities to actually ask questions about whether what FTX was up to was all totally legit. According to The Block, the lawyer at the lead of a class action lawsuit against a bunch of celebrity FTX pushers including Shaquille O’Neal, Tom Brady and Larry David, said Swift was the ‘one person’ who actually did some due diligence. Speaking on The Scoop podcast, Adam Moskowitz said Swift actually asked the key question: 'Can you tell me that these are not unregistered securities?’”. I knew you were trouble, she may say now. Elon Musk was not surprised, though the Tesla boss has skirted pretty close to the line in pumping unregulated securities himself on several occasions….Mr Dogecoin etc.

Going on to Tesla – earnings last night were disappointing as the much-feared and anticipated margin compression was laid bare. Tesla's six price cuts this year won’t be the end as Musk laid out a case for sacrificing profits for market share. Gross margin fell from 29.1% to 19.3% year-over-year after a series of recent price cuts – the latest on Tuesday night, which didn’t impact the first quarter. The problem is Tesla is falling short of expected deliveries and losing market share hand-over-fist in China. This is not necessarily Tesla-specific problems – macro uncertainty and inflation are both factors – but clearly the demand uplift that Tesla expected is not coming through and the price cuts are barely holding the numbers together. Shares fell 6% after hours but still up about two-thirds YTD. Several Asian electric automakers fell in sympathy – price cuts affect all.

Credit crunch...Chicago Fed president Goolsbee said he is waiting to see "whether there are other credit shoes to drop. Not in the crisis sense, but in the how much squeezing is going to be coming up from the bank side". He’s looking at whether tightening credit conditions will slow inflation and the economy... So interesting that last night’s Fed Beige Book showed "Several Districts noted that banks tightened lending standards amid increased uncertainty and concerns about liquidity". No doubt there is tightening – question is whether there is worse to come. Core inflation stickiness will beget further hikes – Morgan Stanley’s Gorman reckons one or two more.

We now head into the Fed blackout period from Saturday ahead of the FOMC meeting May 3-4th, so today’s Fed speakers are among the last before then. Fed speakers today include Waller and Bowman. Tsy Sec Janet Yellen is also due to speak. Today sees weekly unemployment claims (fc 240k), Philly Fed manufacturing index (fc –19.1). It was so utterly flat yesterday on Wall Street I am not sure we see much here – earnings were meant to give direction to the market but so far seem to be telling us nothing.

Bond yields across the piece were at roughly one-month highs yesterday as markets reacted to stronger-than-expected UK inflation. Britain may be an outlier though... Eurozone data showed core inflation remains sticky as anything – headline fell to 6.9% from 8.5% on energy base effects(Energy –0.9% from +13.7%), whilst core ticked up to 5.7% from 5.6%. Some however suggest that there are tentative signs of core inflation cooling. Yields are a tad lower this morning.

Stocks fell slightly in early European trading after a generally weaker Asian session, which in turn followed a totally flat session on Wall Street. The FTSE 100 declined a touch after yesterday’s 0.13% decline saw it snap an eight-day win streak that has taken it within touching distance of the record highs again. A modest decline after such a strong run indicates bulls pausing for consolidation but next couple of weeks is key really as this is hinging on global risk appetite and the Fed. And earnings – the next two weeks are key with a deluge of megacap tech and Dow components coming down the pipe – the banks and Netflix/Tesla have only been the appetisers; the main course is served up over the next fortnight.